European Stocks: Profit From the Recovery in an Easy, Low-Cost Way

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some European stocks to your portfolio but don't have the time or expertise to handpick a few, the SPDR STOXX Europe 50 ETF could save you a lot of trouble. Instead of trying to figure out which European stocks will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics ETFs often sport lower expense ratios than their mutual-fund cousins. This ETF, focused on European stocks, sports a relatively low expense ratio -- an annual fee -- of 0.29%.

This European-stocks ETF underperformed its benchmark over the past five and 10 years, but topped it over the past three. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

Why European stocks? It's smart to diversify your holdings not only by market size and industry but also geographically. If the U.S. economy stalls or slides, other economies may still be performing well, so European stocks could help offset losses in your portfolio.

More than a handful of European stocks had strong performances over the past year. Vodafone Group surged 43% and yields 3%. With shareholders approving the sale of Vodafone's remaining stake in Verizon Wireless to Verizon for $130 billion, Vodafone's dividend is now sturdier and likely to rise. Vodafone is investing in India, too. Bears don't like Vodafone's shrinking free cash flow. There has long been speculation that AT&T might buy Vodafone, but AT&T has denied such plans. The U.K.-based telecom titan offers a handy way to profit from Europe's rebounding economy, and it's making further investments in Europe, as well.

Banco Bilbao Vizcaya Argentaria jumped 28%. It's Spain's second-largest bank and one of world's biggest banks. Spain's rocky economy presents challenges for BBVA, but it can offset that with operations in other regions, such as Turkey and Texas (where it owns Compass Bank). In a conference call following second-quarter earnings, management noted, "[H]ere in Spain, the rate of recovery is being slow and will continue to be slow over the next few months," adding that it would cut its upcoming dividend and also pay more of its dividend in shares in the future.

Other European stocks didn't do quite as well over the last year but could see their fortunes change in the coming years. Banco Santander gained 20% and recently yielded about 7.3%. This Spain-based bank is also geographically diversified, with substantial operations in faster-growing Latin America and South America. Its fourth quarter featured profits up 90%, in large part due to Latin America. Overall, though, Banco Santander has been hurting, with profits well below where they were several years ago. Still, management sees much brighter days ahead, and many, such as Fool U.K. commentator Royston Wild, see Banco Santander as rather attractive.

BP advanced 12% and yields 4.8%. It has long been depressed due to sizable (and not yet fully known) penalties and settlements from its role in the massive Deepwater Horizon oil spill. As my colleague Tyler Crowe explained: "BP has spent approximately $42 billion for everything related to the spill, and it is on the hook for another potential $55 billion for charges from both the Clean Water Act and local and state government claims." BP has sold many assets to generate needed funds, but it has also kept many promising exploration projects, some of which have already yielded discoveries. Major legal and financial worries aside, bulls like the company's focus on energy efficiency, though rising drilling costs are a concern. Some reasonably don't think its risks are worth its potential rewards. BP reports its full-year results on Feb. 4.

The big picture If you're interested in adding some European stocks to your portfolio, consider doing so via an ETF. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

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